|
Getting your Trinity Audio player ready...
|
Since peaking in early 2018, Nigeria’s stock market index has recorded the second biggest sell off in emerging markets stocks, and the strength of the dollar gets much of the blame.
BusinessDay analysed stock exchanges of 37 countries following the interest rate hike in U.S, which has continued to put pressure on emerging and frontier markets.
The analysis cuts across the stock market index of Nigeria, South Korea, Moscow, Pakistan, Taiwan, Poland, Indonesia, India, Mexico, Egypt, South Africa, Turkey, Brazil, Argentina, China, Bangladesh, Bulgaria, Chile, Colombia, Czech Republic, Greece, Hungary, Iran, Israel, Malaysia, Mauritius, Oman, Peru, Philippine, Qatar, Romania, Slovenia, Thailand, Ukraine, United Arab Emirate(UAE), Venezuela and Vietnam.
While few were able to weather the storm, many have been badly hit. Turkey’s stock index recorded the highest sell off at 17.9 percent to 99,000 points from as high as 120,000 point in January when the market was at its peak. The Nigerian stock market index followed behind Turkey recording a 17.7 percent sell off from as high as 45, 000 points in January 19 to about 39,000 on June 5th.
The Argentine, Bangladesh, and Vietnam indexes completed the league of 5 worst sell offs at 17.4 percent, 15.34 percent and 15 percent respectively.
“Foreign investors are liquidating and repatriating their positions from Nigeria which is causing pressure on the Naira, the Investors and exporters window and sell offs of stocks” said Wale Okunrinboye, Head of research at Lagos based Sigma pensions.
“Also, some are positioning themselves ahead of the 2019 election,” he added.
Some foreign investors in the fixed income market whose investments matured are not rolling over their investment because of low yields in the domestic market.
BusinessDay gathered that they are repatriating their funds as yields in the fixed income securities in the advanced economy are going up. This however, last week put pressure on the foreign exchange as naira depreciated to N367 per dollar.
While emerging markets with the least sell offs are the Slovenian, Taiwan, Qatar, Peru, Israeli exchanges at negative 0.6 percent, 1.6 percent, 1.6 percent, 1.8 percent and 2.3 percent respectively.
From our analysis, we also noticed that of all the 37 exchanges in emerging market that was surveyed only Venezuela stock market index has been rallying since the beginning of the year heading north by 44.7 percent from 25,458 points in April to 36,840 points as at June.
Emerging-markets stocks have been pummelled lately, as a result of positive economic data emanating from developed economies and markets, the tension being generated by trade wars, Italian political drama that is threatening the Eurozone and global push-back on US tariffs.
“The dollar remains the single most important consideration for EM (emerging-markets) finances,” says a report from debt-ratings agency Fitch. In general, a stronger dollar tends to mean lower stock prices in emerging markets.
The U.S. currency headed north in late January, around the time U.S. Treasury Secretary Steven Mnuchin said the U.S. didn’t want a weak dollar. From Jan. 24, the day Mnuchin spoke, through May 31, the dollar has risen 5.3 percent, as measured by the trade-weighted dollar index of major currencies.
According to the global agency, many emerging-markets countries borrow in U.S. dollars despite having their own currency for domestic use. Thus, when the dollar rises, everything that gets priced in other currencies becomes cheaper, including foreign stocks such as those in emerging markets.
“Borrowing in foreign currency on a meaningful scale is almost entirely an EM phenomenon, spurred by the underdevelopment of local capital markets,” Fitch said.
While borrowing that way can be a satisfactory arrangement when exchange rates don’t move, it can present problems at other times.
MICHEAL ANI
